Appendix 16 Supplementary draft guidance

THE UK PROPERTY RICH COLLECTIVE INVESTMENT VEHICLES (AMENDMENT OF THE TAXATION OF CHARGEABLE GAINS ACT 1992) REGULATIONS 2020 Introduction

This supplementary draft guidance explains the changes made to Schedule 5AAA to the Taxation of Chargeable Gains Act 1992 (TCGA 1992) by the UK Property Rich Collective Investment Vehicles (Amendment of the Taxation of Chargeable Gains Act 1992) Regulations 2020. Those regulations were laid on 19 March 2020 and are expected to come into force on 10 April 2020. The explanatory memorandum published alongside the regulations provides details of when each of the provisions comes into effect, and further guidance is provided below.

This note, the existing draft guidance available, and the published legislation, should be read alongside one another. The existing draft guidance, and this supplementary guidance, will be updated and published in final form as soon as practicable.

The changes made by the regulations have been informed by responses from industry to the draft regulations published on 19 September 2019, both written and provided face to face over a course of meetings with relevant representative bodies and advisory firms. Background

The UK Property Rich Collective Investment Vehicles (Amendment of the Taxation of Chargeable Gains Act 1992) Regulations 2020 (‘the regulations’) amend Schedule 5AAA of the Taxation of Chargeable Gains Act 1992 (‘TCGA 1992’) introduced in Finance Act 2019.

Schedule 5AAA sets out the rules relating to ‘UK property rich’ collective investment vehicles (CIVs) and their investors. The legislative context of the regulations is set out in section 6 of the explanatory memorandum, which explains in high level terms the scope of the changes made. The policy background is set out in section 7 of the explanatory memorandum.

This guidance provides additional commentary on the practical effect of the changes. It assumes that readers are familiar with the scope of the rules set out in the relevant legislation and previously published draft guidance. Overview of changes made by the regulations

The regulations make changes to the following aspects of the provisions in Schedule 5AAA –

- the scope of the term ‘collective investment vehicle’;
- interaction with the rules in Schedule 1A TCGA 92 that provide exceptions from a company being UK property rich;
- the making of annual Partnership Returns where transparency elections have been made, information to be provided when making an election, and extension to the time limit for making an election;
- the conditions applicable to CIVs making exemption elections;
- the rules applicable to certain institutional investors when they invest indirectly in CIVs through particular holding structures.

The regulations also contain some minor corrections and clarifications.

This guidance provides further details regarding the scope and effects of the amendments. Definition of a collective investment vehicle

The term ‘collective investment vehicle’ (‘CIV’) is defined at paragraph 1(1) of Schedule 5AAA.

Paragraph 1 lists various types of CIV that may be used to hold UK property, the intention being to broadly capture the universe of fund types that may be used for that purpose. The definition is important as, taken together with the expressions “offshore collective investment scheme” and a CIV being “UK property rich” introduced in paragraphs 2 and 3, it provides the foundations for the rules applicable to CIVs and their investors. Entities that do not come within the definition, and their investors, are instead subject to the ‘core rules’ set out in Schedule 1A of TCGA 1992.

UK Real Estate Investment Trusts (‘UK REITs’)

Paragraph 1(1)(c) as introduced included “a company which is a UK REIT” within the definition of a CIV. A REIT, or Real Estate Investment Company, is a type of listed property company and legislation in Part 12 of the Corporation Tax Act 2010 provides tax rules relevant to such companies.

A UK REIT may be a company REIT or a group REIT. A group REIT consists of a principal company and its subsidiaries. However, the principal company itself is not a ‘UK REIT’ for the purposes of Part 12, rather it is the group as a whole. The legislation as introduced did not include the principal company of a group UK REIT, contrary to intention. Regulation 3(a) corrects this, so that both single company UK REITs and the principal company of a group UK REIT are included within the definition of a CIV.

The practical impact of this is that non-resident investors with a less than 25% interest in the principal company of a group UK REIT that is UK property rich will not have been treated as having a substantial indirect interest in the company prior to it coming within the definition of a CIV, and consequently gains made on disposals of such interests are not within the charge to UK tax. From the date the regulations take effect all investors with an interest in a group UK REIT that is UK property rich will be treated as having a substantial indirect interest for the purposes of Schedule 1A.

Non-resident property companies similar to UK REITs

Scope of definition

Paragraph 1(d) and paragraph 2 as introduced were intended to capture non-resident UK property rich companies that are similar to UK REITs. Regulations 3(c) to (h) make changes to ensure that the rules work as intended.

The changes made by regulation 3(b) ensure that only principal, and not subsidiary, companies of non-resident property groups come within the definition of a CIV. This is with one exception, so that a subsidiary company that is 99% or more owned by a qualifying investor (broadly, an institutional investor such as another type of CIV or a pension fund, for example) also comes within the definition. This broadly mirrors the position for UK REITs and the change means that, except as noted, subsidiary companies will not come within the definition of a CIV.

Regulation 3(b) operates by substituting subparagraph 1(d) of the Schedule with new subparagraphs 1(d) to (f). Those subparagraphs include particular types of companies that are not resident in the UK, and that meet the 'property income condition' (see below), within the definition of a CIV –

- Subparagraph 1(d) includes companies that are not a member of a group;
- Subparagraph 1(e) includes the principal company of a group that is not a close company or is a close company but only because it has a qualifying investor as a direct or indirect participator,
- Subparagraph 1(f) includes a company that is a member of a group but is not the principal company of that group, and is a close company but only because it has a qualifying investor, or a company wholly (or almost wholly) owned by qualifying investors, as a direct participator.

Whether a company is a member of a group, or is the principal company of a group, is determined in accordance with section 170 TCGA 1992.

The term 'qualifying investor' is defined at paragraph 46(3) and includes entities within section 528(4A) of CTA 2010, with some modifications to ensure that such entities are widely held where appropriate. The term is further modified for the purposes of paragraph 1 by regulation 3(e) so as to exclude qualifying companies and qualifying funds that are the subject of a paragraph 12 exemption election.

Subparagraphs 1(d) to (f), together with the property income condition, therefore capture non-resident companies that are broadly equivalent to UK REITs. Subparagraph 1(f) in broadly mirrors the requirement for a UK REIT to not be close other than because it is owned by one or more qualifying institutional investors within section 528(4A). This would, for example, permit a company to qualify as a UK REIT if it is close because it is wholly or partly owned by a pension fund as defined in section 150(1) of Finance Act 2004, and similarly a non-resident company that is so owned and meets the property income condition will be within the definition of a CIV.

Property income condition Paragraph 2 of Schedule 5AAA has been amended so that it deals only with companies within revised subparagraph 1(d). New paragraph 2A deals with companies within subparagraphs 1(e) and (f).

The changes made ensure that the property income condition works as intended. In particular, they –

- Clarify that it is the distribution of profits other than those of a capital nature, rather than income, that is being tested, and
- Clarify the position as regards income and profits of groups. Effect of the changes

These changes mean that certain entities that are currently eligible to make an exemption election will no longer be able to do so once Schedule 5AAA has been amended. So, a company that falls within the original subparagraph 1(d) would no longer meet the definition of a CIV if it is not a singleton company, the principal company of a group, or within the new subparagraph 1(f).

For a company that no longer comes within the definition of a CIV, and that has made a paragraph 12(2) exemption election, any disposal by an entity covered by the election up to the commencement date is exempt, and investors are treated as continuing to hold their interests up until that date unless they make a disposal. From the commencement date, if the applicable exemption conditions are no longer met then, in accordance with paragraph 20, affected elections cease to have effect from that time in relation to disposals made thereafter. Investors are treated as making a deemed disposal on that date in accordance with paragraph 22. Any gains are then treated as accruing to investors in accordance with paragraph 23, that is at the end of the period of three years beginning with the time of the deemed disposal, unless an actual disposal has been made or an amount has been received that would be dealt with under paragraph 21.

In practice this scenario is unlikely to arise as fewer than 30 paragraph 12(2) elections had been received as at 2 March 2020. Interaction with the rules in Schedule 1A TCGA 92

Interaction between Schedules 1A and 5AAA TCGA 1992

Non-UK resident persons are chargeable to UK tax where a gain arises on disposal of an interest in an asset that derives 75% or more of its gross asset value from UK land, and the person making the disposal has a substantial indirect interest in that land. These principles are provided for in section 1A(3)(c) of TCGA 1992 for CGT, and section 2B(4)(b) of TCGA 1992 for Corporation Tax purposes.

The rules for establishing whether the conditions that must be met in order for a chargeable disposal to have occurred are in Schedule 1A to TCGA 1992. Paragraphs 5 and 6 of Schedule 1A provide exceptions to treating a company as UK property rich where, broadly, the UK property is used in a trade, or is disposed of as part of a series of linked transactions that, if made by a hypothetical single holding company, would not be subject to tax.

Paragraph 3 of Schedule 5AAA determines when a CIV or company is UK property rich for the purposes of Schedule 5AAA. The question whether a CIV or company is “UK property rich” at any time is determined by applying the rules in Part 2 of Schedule 1A with certain modifications.

The interaction of the rules in paragraphs 5 and 6 of Schedule 1A, and paragraph 3 of Schedule 5AAA, mean that there may be scenarios where a CIV that is clearly UK property rich on any objective measure may nonetheless be determined not to be so because of the availability of an exception within Schedule 1A to an interest being UK property rich. That exception may be capable of being determined at different points within the life of an entity, which could result in difficulties in monitoring the position. A consequence of being determined not to be a UK property rich CIV is that the entity would not be able to make an election for transparency under paragraph 8 of Schedule 5AAA, or for exemption under paragraph 12 of that schedule, where it would otherwise qualify to do so.

The changes made by regulation 4 provide that no account is to be taken of paragraphs 5 and 6 of Schedule 1A when considering the test for UK property richness in paragraph 3 of Schedule 5AAA.

The changes have effect from the commencement date, so do not apply retrospectively. This is because, taken together with the changes made by regulation 14 (see below), they potentially have a taxing effect as investors in CIVs that are now to be regarded as UK property rich will be within the charge to tax on gains on relevant disposals. However, such CIVs will (where eligible) be able to make a transparency or exemption election so that there is no tax on gains at CIV level.

The deadline for making a transparency election is extended in particular circumstances by regulations 18 and 19 to allow fund managers more time to consider the effect of these changes –

- For CIVs existing as at 6 April 2019, regulation 18 amends paragraph 49 so that paragraph 9(1)(c) has effect as if it permitted the election under paragraph 8 to be made before 1 October 2020; • For CIVs constituted on or after 6 April 2019, regulation 19 introduces new paragraph 49A which provides that paragraph 9(1)(c) has effect as if it permitted the election under paragraph 8 to be made before whichever is the later of the end of the period mentioned in paragraph (1)(c), or 1 October 2020. For example, a CIV constituted on 1 June 2019 that first acquired an interest in UK land, or a right or interest in a company that is UK property rich, on 1 July 2019, the previous deadline for making a paragraph 8 election would have been 30 June 2020 but paragraph 49A extends that to 1 October 2020.

Unlike the position for a transparency election, there is no hard deadline by which an election must be made under paragraph 12. Instead, paragraph 17 provides that –

• an election under paragraph 12 must specify the day from which it is to have effect; • the election has effect in relation to disposals on or after the day specified in the election; a day may be specified in the election even if it falls before the day on which the election is made; but • a day that falls more than 12 months before the day on which the election is made may be specified only if an officer of Revenue and Customs consents.

Paragraph 17(6) provides that for this purpose consent may be given generally (for example, by describing in a notice published by an officer of Revenue and Customs, cases in which consent is deemed to be given), or consent may be given in relation to particular cases. If an election is made subsequent to the commencement date of the regulations then this note may be taken as confirmation that HMRC will consent to it being made (subject to the relevant conditions having been met) where it is made before 1 October 2020, even where that date is more than 12 months after a relevant disposal.

**New paragraph 33A**

Regulation 14 inserts new paragraph 33A into Schedule 5AAA, so that investors making disposals of interests in qualifying funds or qualifying companies for which an exemption election has been made will not be entitled to relief under paragraphs 5 or 6 of Schedule 1A. This ensures that tax is paid by non-exempt investors when they dispose of interests in a CIV that does not itself pay tax on its gains, as intended. This change takes effect from the commencement date. Transparency elections

CIVs that make transparency or exemption elections are subject to requirements to provide certain information either at the time of making the election and/or at some specified future date.

Regulation 7 clarifies rules about the provision of partnership returns for CIVs that have made the transparency election. In particular, it provides that Section 12AA of the Taxes Management Act applies as if it authorised a single notice under subsection (2) or (3) requiring the making and delivery of an annual partnership return regardless of whether any partnership property has been disposed of. Such a return is only required to show the amount in which each partner is chargeable to tax on chargeable gains, so does not need to include details of the income of the CIV.

Regulation 8 inserts a new statutory requirement to provide investors’ details to HMRC on the making of a transparency election. This change takes effect for elections made on or after the commencement date.

The details required are –

- the participant’s name and, if the participant has one, the participant’s unique taxpayer reference,
- the participant’s usual or last known place of residence or the participant’s place of business, and
- in the case of a participant who is an individual, the participant’s date of birth. The conditions applicable to CIVs making exemption elections

CIVs wishing to make an exemption election must satisfy the relevant conditions in Schedule 5AAA. The regulations make a number of amendments to those conditions to ensure that they work as intended.

Subparagraphs 12(2) and 12(3) respectively enable an exemption election to be made in respect of either a CIV, or a company which is not a CIV but is at least 99% owned by a collective investment scheme limited partnership (CIS LP) or a UK co-ownership authorised contractual scheme (CoACS). This is subject to certain entitlement and qualifying conditions as set out in paragraphs 12 and 13 being met.

Among those conditions are those that are intended to ensure that (broadly) the CIV or company being considered is not controlled by a small group of connected persons. The rules apply a modified form of the close company test in Part 10 of Corporation Tax Act 2010, or in some circumstances a genuine diversity of ownership (GDO) condition (a proxy for being non-close where a CIV is not a company with fixed share capital).

Regulations 9, 10, 15, 16 and 20 make changes to ensure that the rules work as intended, so that CIVs are not disadvantaged where they fail to meet the conditions for certain purely technical reasons despite in effect being widely held or having been widely marketed. The effect of those changes is set out below.

The non-close condition

Determining whether a company is close for the purposes of paragraph 13(2) – companies controlled by a general partner or manager of a CIS LP

In order for a paragraph 12(3) election to be made, the condition at paragraph 13(2) requires that either –

- the company that is the subject of the election meets the UK tax condition and the non-close condition, or
- the CIS LP (including deemed CIS LPs as a result of a transparency election) or CoACS which owns at least 99% of the company meets the GDO condition.

CIS LPs will often be unable to meet the GDO test simply because of how they were set up and marketed, albeit they may be widely held. Assuming that the UK tax condition at paragraph 13(7), which is a purely factual test to do with the residence of the CIS LP investors at the fund level, would be met this then means that in practice the relevant company must not be close.

For this purpose, whether a company is “a close company” is determined in accordance with the rules in Chapter 2 of Part 10 of CTA 2010 but subject to certain modifications, of which perhaps the most relevant here is the non-attribution of partners’ rights to each other. However, as the general partner of a CIS LP or the manager of a deemed CIS LP will have a controlling interest in an investee company by virtue of holding the voting rights it can be said that they control the company in question by virtue of their powers to manage the affairs of the partnership, and the company would remain close notwithstanding the disregard for attribution of partner rights at paragraph 46(2)(d).

Regulation 15(a) addresses this situation by amending paragraph 46 so that a company will not be treated as close only because such a person possesses or is entitled to acquire the greater part of the voting power in that company.

Determining whether a company is close for the purposes of paragraph 13(2) – tracing through to ‘qualifying investors’

Paragraph 13(5) provides that a company meets the non-close condition either because it is not close on the basis of the modified close company test at paragraph 46(2), or it is a close company only because it has a qualifying investor as a direct or indirect participator.

The intention here is to allow a look-through of immediate investors to establish whether control is ultimately established through institutional investors. The look-through must be through bodies corporate. So, a company which is a direct investor in the CIV could count toward the level of control held by qualifying investors if it were itself sufficiently owned by qualifying investors.

The term qualifying investor is defined at paragraph 46(3). Broadly, it includes institutional investors such as some pension funds or certain types of CIVs. The term ‘indirect participator’ is defined at paragraph 46(7). It refers to having an indirect interest in a company through another body corporate or bodies corporate. Paragraph 46(8) to (11) then provide further rules in relation to this ‘tracing’ provision, to illustrate that look-through also applies where there are more than two entities in the chain of ownership.

As originally drafted, the reference to body(ies) corporate in paragraph 46(7) would preclude looking through structures that have a paragraph 4 deemed company (a tax transparent unit trust or contractual arrangement CIV) in the chain of ownership. The same would be true in respect of a UK exempt unauthorised unit trust.

Regulation 15(c) addresses this by providing that for the purposes of ‘this paragraph’ (that is, paragraph 46) any reference to a body corporate includes –

- an offshore CIV which is, as a result of paragraph 4, assumed to be a company for the purposes of Schedule 5AAA, and
- anything else which is, as a result of provision made elsewhere by this Act, assumed to be a company for the purposes of TCGA 1992. The GDO condition

Determining whether a collective investment scheme meets the GDO condition

The GDO condition is relevant for the following purposes in Schedule 5AAA as originally drafted -

- Paragraph 7: disapplying the paragraph 6 ‘appropriate connection’ rule;
- Paragraph 13(1)(a): for the purposes of making a paragraph 12(2) exemption election;
- Paragraph 13(2)(b): for the purposes of making a paragraph 12(3) exemption election; and
- Paragraph 46(3): requires that certain qualifying investors within section 528(4A)(a) meet the GDO.

There are further details regarding the GDO condition in the draft guidance. In brief, it relies on a fund having included suitable wording in its documentation such as its prospectus, as well as having made certain commitments with regard to the marketing of the fund and actually meeting those commitments. Schedule 5AAA preys on the GDO condition in the Offshore Funds (Tax) Regulations 2009, modified so as to ensure that all CIS are included even where they do not come within the definition of an offshore fund (principally, CIS LPs).

The regulations make a number of changes to how the GDO test is applied for Schedule 5AAA purposes to deal with practical difficulties that were identified by stakeholders after the legislation was introduced. Those difficulties meant that some CIVs could not meet the conditions for making a paragraph 12 election for certain purely technical reasons despite in practice being widely held or having been widely marketed. The changes made are as follows –

Regulation 6 amends paragraph 7(5) so that the requirement in regulation 75(4)(b) of the Offshore Fund Regulations previously preyed on is disapplied. That requirement was for a person who falls within one of the intended categories of investors to be able, upon request to the manager of the fund, to obtain information about the fund and acquire units in it. It is disapplied as it does not work well in the context of the rules in Schedule 5AAA, particularly for some CIVs that were constituted before the rules took effect. Subparagraph 7(5) then refers readers to new paragraphs 46A and 51 (see below).

Regulation 10(a) inserts new subparagraph 13(1)(ab). This provides that a CIV wishing to make a paragraph 12(2) exemption election may, if it does not itself meet the GDO condition, rely instead on meeting the UK tax condition in paragraph 7 if it is wholly or almost wholly owned by one or more collective investment schemes, each of which meets the GDO condition. This is to cater for situations where the CIV wishing to make the election is owned by one more feeder funds.

Regulation 10(b) amends existing subparagraph 13(2)(b) concerning paragraph 12(3) exemption elections so that either – • the collective investment scheme directly owning the company must meet the GDO condition, ‘directly’ meaning that there can be no company, partnership, trust or other entity or arrangements between the CIS and the company (as originally intended), or • that collective investment scheme is wholly (or almost wholly) and directly owned by one or more CIS LPs, each of which meets the GDO condition. Here, ‘directly’ means that there can be no company, partnership, trust or other entity or arrangements between the CIS that owns the company and the CIS LP that owns that CIS.

The second point above caters for feeder funds.

The requirement for direct ownership in the first case above means that in theory an election under paragraph 12(3) may have been made prior to the regulations taking effect that would not be possible after that date. The practical effect of the change is that any disposal made by an entity covered by the election up to the commencement date is exempt, and investors are treated as continuing to hold their interests up until that date unless they make a disposal. From the commencement date, if the applicable exemption conditions are no longer met then, in accordance with paragraph 20, affected elections cease to have effect from that time in relation to disposals made thereafter. Investors are treated as making a deemed disposal on that date in accordance with paragraph 22. Any gains are then treated as accruing to investors in accordance with paragraph 23, that is at the end of the period of three years beginning with the time of the deemed disposal, unless an actual disposal has been made or an amount has been received that would be dealt with under paragraph 21.

In practice this scenario is unlikely to arise as fewer than 5 paragraph 12(3) elections had been received as at 2 March 2020.

Regulation 10(c) explains terms introduced in regulation 10(b).

Regulation 10(d) makes similar changes in relation to paragraph 13 to those made by regulation 6 in relation to paragraph 7(5).

Regulation 15(b) makes similar changes in relation to paragraph 46(4) to those made by regulation 6 in relation to paragraph 7(5).

Regulation 16 inserts new paragraph 46A “References to regulation 75(3) of the Offshore Funds (Tax) Regulations 2009” which applies in determining whether a CIV meets the GDO condition referred to in any provision of Schedule 5AAA. The effect of paragraph 46A is that regulation 75(3) of the Offshore Funds (Tax) Regulations 2009, including as it applies for the purposes of regulation 75(5) of those regulations, is not prevented from being met if the capacity of the vehicle to receive investments is limited, except where the limited capacity to receive investments is fixed by the documents of the vehicle (or otherwise), and a pre-determined number of specific persons or groups of connected persons collectively exhaust all, or substantially all, of that capacity. Regulation 20 inserts new paragraph 51 “Genuine diversity of ownership condition in case of existing funds”. This paragraph applies in determining whether a CIV constituted before 6 April 2020 meets the GDO condition referred to in any provision of Schedule 5AAA. It addresses a difficulty that some CIVs may not have prepared relevant documents as required by Condition A in regulation 75(2) of the Offshore Funds (Tax) Regulations 2009, including as it applies for the purposes of regulation 75(5) of those regulations, as they were constituted before the rules in Schedule 5AAA took effect (an additional 12 months period is provided for as some CIVs may have planned launches prior to 6 April 2019 that were effected after that date).

The new rule instead permits a statement to be prepared by the manager of the vehicle, available to HMRC, which provides similar information as would have been required in the fund documents. Paragraph 33: Exemption for disposals by companies wholly owned by certain investors

Extending the scope of paragraph 33 Paragraph 33 as introduced provides an exemption for a company ‘C’ (other than one that is also a CIV) on any gains on disposals of an interest in a qualifying fund or a qualifying company that is the subject of a paragraph 12 exemption election, provided that C is wholly owned by persons listed in paragraph 33(4). Broadly, such investors are institutional investors that would be exempt on any gains made on direct disposals, such as sovereign wealth funds, pension funds, and so on. Such investors must be direct participators in the company.

The rules in paragraph 33 were introduced as institutional investors often invest in property funds through feeder vehicles, for example a wholly owned holding company. Regulation 13 amends paragraph 33 to address further situations where such investors use certain holding structures for which the original rules make no provision.

Regulation 13 substitutes subparagraphs 33(1) and (2) so that the scope of paragraph 33 is widened to include the following arrangements, with retrospective effect to 6 April 2019 as the changes are relieving –

(a) a CIV in respect of which an election under paragraph 8 has been made (a “transparent fund”), (b) a qualifying fund or qualifying company in respect of which an election under paragraph 12 has been made, (c) a company which is a company UK REIT or is the principal company of a group UK REIT, or (d) an open-ended investment company to which Part 4A of the Authorised Investment Funds (Tax) Regulations 2006 applies and which is UK property rich (a “PAIF”);

The legislation refers to each such arrangement as ‘the fund’. If a company which is wholly (or almost wholly) owned by one or more investors referred to in paragraph 33(4) disposes of a unit in the fund then any gain accruing on the disposal is not a chargeable gain. Note that the reference to a unit in the fund also covers disposals of interests in underlying companies owned by a transparent fund, as provided for by paragraph 1(6)(a).

Regulation 13(b) then introduces new subparagraph 33(2A). That subparagraph provides that if a company which is wholly (or almost wholly) owned by one or more investors referred to in paragraph 33(4) disposes of a right or interest in a company whose assets consist wholly of units in the fund concerned, any gain accruing on the disposal is not a chargeable gain. This deals with structures where, for example, a pension fund owns 99% or more of Company A, which in turn has an interest in Company B, and Company B’s assets consist wholly of units in the fund; if A disposes of a right or interest in B then any gain accruing on the disposal is not a chargeable gain.

Regulation 13(c) makes consequential amendments to paragraph 33(3).

*Inter-dependency between paragraph 12 and paragraph 33*

Paragraph 13 sets out various conditions that must be met in order for an election to be made to treat a relevant CIV or company as exempt. One component of those conditions is the concept of the ‘UK tax condition’, which is defined at paragraph 13(7).

A holding company may meet the conditions to fall within paragraph 33 because it is wholly owned by persons listed in paragraph 33(4), but the CIV or company it is invested in may not meet the conditions for a paragraph 12 exemption election to be made purely because the holding company is resident in a territory that would make the CIV or company fail the UK tax condition.

Regulation 10(e) removes this anomaly by inserting new subparagraph 13(8), which provides that if any of the proceeds mentioned in subparagraph 13(7) arise to a company which is wholly (or almost wholly) owned by one or more investors to which paragraph 33 applies, the company is to be treated for the purposes of that subparagraph as if it were exempt from corporation tax in respect of chargeable gains accruing to it otherwise than as a result of double taxation agreements. Minor corrections and clarifications

Other changes made by these regulations correct minor errors or clarify the way particular rules are intended to operate, as follows –

Regulation 5 amends paragraph 6(8) (disposals by non-UK residents), so that “schemes” substitute “vehicles”; this corrects a simple drafting error which should have no practical impact.

Regulation 11 makes various clarifying amendments to paragraph 21. Paragraph 21(1)(c), as amended, makes it clear that the amount of a revenue nature referred to must not fall to be taken into account for the purposes of income tax or corporation tax on income whether in the case of the participant or anyone else. This addresses situations where, for example, the CIV or company that is the subject of the relevant paragraph 12 exemption election makes a disposal of UK land that is subject to UK tax because it is characterised as income.